How to assess the cost of an ERP

As we have already mentioned in a previous article, an ERP is an absolutely essential tool for managing the data circulating within your company.

If its ability to organize and centralize information and allow real-time updates is immediately recognized, some questions remain about the costs involved in its implementation in a business. To address this issue, here's an overview of the expenses related to its installation.

Factors Influencing the Price of an ERP

Software Acquisition: Purchase or Lease?

Once the decision to implement an ERP is made, it's important to know that two options are available for its acquisition. The first option is to lease the software, a practice that has been promoted in recent years based on the Software as a Service (SaaS) principle. It's possible to lease the software on an annual or monthly basis by determining the duration of the lease. Importantly, software leasing itself is possible through the use of cloud computing.

In the second case, you have the option to purchase the license for your ERP, officially making you its owner. This decision will have a significant impact on the price you will pay to obtain it, as purchasing the license requires a larger upfront investment, unlike leasing, which allows you to spread the costs.

What about the OpenERP license? If an open-source software license (freely redistributable) seems to be the obvious solution to save valuable dollars at the time of acquisition, it should be noted that the implementation of your software may pose some difficulties in terms of installation. Therefore, it may be necessary to seek external specialized help, which will obviously incur additional costs.

ERP Integration

The installation of your ERP, the adjustment of its settings, and its testing are also aspects to consider when assessing the cost of the ERP. Depending on the size and complexity of the software, the costs involved in integration will vary.

The larger and more tedious the task, the more time your service provider will spend making everything operational, and consequently, the fees they will require for their work. Moreover, if it is necessary to convert your databases into a language compatible with that of your software, the time required for implementation will be significantly longer.

It should be noted that integration costs may be included in the price requested for leasing your ERP (if you choose this option), although this is not always the case.

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Let's finish by mentioning that data migration may require external assistance if the technical resources within the company are not able to perform this step adequately.

As information transfer and the implementation process as a whole can require an investment in time counting in hundreds of hours, it goes without saying that the associated costs must be taken into account. Note, in passing, that data migration often involves the installation of devices allowing this operation, which also means additional costs.

Need advice for successful ERP implementation? Read our article on the subject!

Employee Training

As an ERP is a tool whose deployment greatly modifies internal work methods, don't forget that it will be necessary to plan a training period for employees to know how to use it to its full potential. Moreover, more advanced functions will probably require more attention.

In addition, occasional review of less well-mastered concepts will probably need to take place. This reminds us that it is essential to include in your budget related to the purchase or lease of an ERP the costs associated with the training of employees who will use it.

Since your employees undergoing training are not performing their normal tasks, it makes sense to consider this as an indirect cost of implementing a new ERP. The same logically applies to the time spent by staff members acting as trainers.

Software Size

Although this point may seem obvious, let's take the time to specify it to emphasize its importance. Indeed, it is always necessary to keep in mind that the more elaborate your software is and the more it will be used by a large number of individuals on a daily basis, the higher its price.

Maintenance

Regarding updates to your ERP, it should be emphasized that these are not always included in the price set when purchasing a license. If you opt for leasing (SaaS solution), know that the fees associated with updates are usually included in the rate requested.

However, these fees may fluctuate over time, which is not always ideal for people who want greater predictability concerning the costs to be incurred. In either case, it is important to inquire to avoid any unpleasant surprises.

Modifications and Fixes

Let's continue by pointing out that modifications and fixes will also need to be made after the software is tested. Users will be able to identify elements that could be optimized so that the software responds as effectively as possible to the objectives targeted by its integration.

As this adjustment will require the intervention of an editor, it must be acknowledged that this step will also involve additional costs. Note, in passing, that adding additional modules to the software can be expensive and lead to exceeding the initially planned costs.

Internal Mastery of the ERP

It is often said that time is money. If we think that everything will go smoothly once the training on how to use the ERP is given, it should be noted that an adjustment period will be necessary for all employees to master it. Of course, the time invested in this regard cannot be used for something else, which can cause a temporary loss of productivity. Keep in mind, however, that this situation is temporary and will resolve itself over time.

Possible Changes

In order to effectively meet the needs of your company, your ERP must be able to evolve as it does. Just as your company will evolve over time and expand, adjustments to your ERP may need to be planned.

Indeed, an ERP whose performance and features are not adapted to the needs of the company in which it is implemented is of little use. Will the ERP need additional applications? As it is highly likely that this will be the case, budget accordingly, taking into account your long-term growth prospects.

Want to learn more about ERPs? Check out our article Everything about ERP Software.